We don't do amusement park rides any more, not since we lost our burrito on the Zipper. But for sheer thrills, yesterday's wild bounce on the Toronto Stock Exchange was as good as any rickety contraption at the fairground.
Except if you happen to own income trusts.
Trusts were already flailing like fish out of water before Clearwater Seafoods Income Fund suspended distributions yesterday, sending a wave washing over the sector that was already bracing for a tax clampdown from Ottawa
To say that trust investors are nervous doesn't do justice to the way they're scrambling for the exits. Yesterday, 61 of 70 members on the S&P/TSX capped income trust index lost ground, led by Clearwater's 35-per-cent plunge. Fellow seafood trust Connors Brothers Income Fund dropped 10.3 per cent.
Over all, the trust index shed 1.4 per cent, bringing its loss to more than 11 per cent since mid-September, when Finance Minister Ralph Goodale announced that the Canada Revenue Agency would no longer provide advance tax rulings to firms considering conversion to a trust, signalling Ottawa's determination to halt the trust party.
Small investors, who had flocked to trusts for their juicy, tax-advantaged distributions, were the source of most of the selling yesterday. "My sense is that a lot of it is retail capitulation," said Tony Courtright, an analyst at Scotia Capital. "The trusts have been bleeding for the last month."
But uncertainty surrounding how Ottawa will try to rein in the sector is only one factor in the selloff, he said. Rising bond yields are also creating more competition for trusts, at a time when markets in general are more volatile and investors are looking for stability offered by fixed-income products.
Mr. Courtright, for one, sees no immediate relief ahead.
"In the near term, I believe there will be continued uncertainty. I think interest rates are going to be a negative [for trusts]," he said. Investors have "had a good ride on trusts and the ones that shot up the most have probably corrected the most because people have been trying to lock in their gains and get out on the way down."
Down was precisely the direction the S&P/TSX was heading yesterday in a session that had all the makings of yet another October massacre. Within a half hour of the opening bell, the benchmark S&P/TSX composite index had plunged 140 points, as energy stocks followed oil prices south after a bigger-than-expected increase in U.S. petroleum inventories.
But energy shares quickly reversed course, as worries resurfaced that hurricane Wilma might still pose a threat to oil and gas production in the Gulf of Mexico. While forecasters said the odds of that were remote, the S&P/TSX also got a huge lift from EnCana Corp., which soared $5.49 to $61.65 amid rumours that Royal Dutch Shell was poised to make a takeover offer for North America's largest natural gas producer.
EnCana's 9.8-per-cent rise was the biggest on the S&P/TSX, which finished with a gain of 80.69 points or 0.8 per cent at 10,425.78, providing some relief in a month that has seen the index shed 5.3 per cent. "I don't think we're necessarily out of the woods yet here," said Garey Aitken, portfolio manager with Bissett Investment Management in Calgary.
"People are still pretty nervous, generally. We're looking at volumes and bids drying up to some degree in certain names, so I really think it's been an absence of buyers as much as a wave of selling" that's sent the market down in October.
But the energy skid is creating opportunities, he added. "Just in the last few weeks, we've been buying certain energy names in this environment," he said.
U.S. markets also chalked up gains, as stronger-than-expected profits from Altria Group Inc., J.P. Morgan Chase & Co. and Yahoo Inc. handed the S&P 500 its biggest advance since April, rising 17.62 points or 1.5 per cent to 1,195.76.
The Dow Jones industrial average rose 128.87 points or 1.2 per cent to 10,414.13, and the Nasdaq composite index added 35.24 points or 1.7 per cent to 2,091.24.
© The Globe and Mail
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